Has political communication during the crisis impacted sovereign bond spreads in the euro area?

Abstract

Using thousands of news agencies reports from May 2010 to June 2011, we find that statements about restructuring, bailout and the involvement of the European Financial Stability Facility (EFSF) have impacted bond spreads of countries in the periphery vis-à-vis Germany. Our findings also indicate that the more different euro area governments issued statements at the same time, the more bond spreads have increased. Finally, statements from politicians from AAA-rated countries seemed to have a particularly strong impact on spreads.

Keywords:

• sovereign bond spreads
• financial crisis
• political communication
• panel data

JEL Classification:

• E43
• E62
• G12
• G14
• C23
• D70

Acknowledgements

We gratefully acknowledge comments received from Michael Ehrmann, Sebastian Hauptmeier, Fédéric Holm-Hadulla, Matthias Mohr, Eloïse Orseau and Ad van Riet.

Notes

¹ See Sazedj and Tavares (2011), who analyse the impact of Obama speeches on stock returns, as one of the few exceptions.

This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB or the Eurosystem.

² All news agencies reports have been collected by the real-time information service of the European Central Bank (ECB).

³ We also checked the impact of statements related to private sector involvement and euro area exit. However, we find largely insignificant results.

⁴ The estimation results are qualitatively robust to varying degrees of proximity.

⁵ A detailed description of the variables (Table A1), the summary statistics (Table A2) and the correlation matrix (Table A3) can be found in the Appendix. We also included dummy variables for working days (Monday–Friday) whenever they are jointly significant at the 10% level (see the p-values of the Wald test of joint significance reported in Table 1).

⁶ Fisher-type panel unit root tests indicate stationarity for all relevant variables (see Table A4 in the Appendix).